The banks that like to say Yes?

Changes in net lending by banks and their drawings on the Funding for Lending scheme.

The sharp rise in mortgage approvals (see here for the latest data) can’t disguise a fundamental re-ordering among mortgage lenders. The giants of the last decade are shrinking their lending and new challengers are emerging.

The latest data from the Bank of England (you can see it here) on the amount lenders have drawn down from the Funding for Lending scheme shows that some of the biggest lenders in the UK have shrunk their lending by billions of pounds, while others have ramped up how much they lend (see graph).

Lloyds Banking Group (which includes the Bank of Scotland and the Halifax) is Britain’s biggest mortgage lender. Yet it has reduced overall lending to households by over £5 billion since the end of June last year, despite drawing down £3 billion from Funding for Lending. Royal Bank of Scotland, the second largest lender, has cut its total loan book by £6.7 billion and Santander (which includes Bradford & Bingley, Alliance & Leicester and Abbey National) has shrunk its by over £10 billion.

These are three of the big five in terms of mortgage lending. Between them, they account for around £846 billion in loans to households.

But as they shrink their loan books, others are taking up at least some of the strain. Barclays and the Nationwide, the other two big hitters when it comes to mortgage lending, have increased their total lending by over £7 billion each over the same period.

And some relative minnows are starting to make their presence felt. Virgin Money has lent £2.3 billion more since last summer and the Coventry building society is not far behind. Then there are a number of smaller building societies which have increased the amount they lend over the last year. For simplicity, the graph in this post does not include all of the smaller lenders.

Despite this shift, however, many of the lenders who have cut their loan book over the last year will remain among the largest players in the market and their decisions will have huge impact on mortgage availability.

Let me illustrate. RBS and Santander shrunk their loan books by £4.5 billion in the three months between April and June this year. That’s around 2.5 times the total increase in net lending in that period. Lloyds, on the hand, started to increase lending in the second quarter as its circumstances improved. If RBS and Santander could follow its lead, even in a small way, the impact on the mortgage market would be considerable.